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Targeted Reforms Update – Most regulators abandon the “Best Interest Standard” but propose to proceed with refined “Targeted Reforms”

Posted in Advisors, Amendments, Broker-Dealers, Compliance and Supervision, CSA, IIROC, Industry News, MFDA, OSC, Registrants

The Canadian Securities Administrators (CSA) issued CSA Staff Notice 33-319 (the Notice) to provide an update on the “Best Interest Standard” and “Targeted Reforms” proposed last year in an important CSA Consultation Paper that we discussed in a previous post.

Most regulators have decided to abandon the Best Interest Standard which would have introduced a “client best interest” standard against which all registrant-client obligations would be interpreted.

The CSA will still proceed with a refined set of Targeted Reforms. Even in the absence of a Best Interest Standard in most jurisdictions, the Targeted Reforms would nonetheless … Continue Reading

Blockchain applications may be caught by Ontario’s securities law

Posted in Fintech, Industry News, OSC

The Ontario Securities Commission (OSC) has issued a press release advising stakeholders that Ontario securities law may apply to any use of distributed ledger technologies (DLT), such as blockchain, as part of financial products or service offerings.

The OSC emphasized that it is keen to support the innovative potential of DLT because, among other things, DLT has the potential to increase transparency and efficiencies in the capital markets. However, because of DLT’s novelty, the OSC encourages business to speak to the OSC about securities law and investor protection requirements that may apply.

The OSC has cautioned that “[p]roducts or other … Continue Reading

CSA’s 2016 Enforcement Report: insights into securities regulatory activity

Posted in AMF, CSA, Enforcement, Litigation, OSC

The Canadian Securities Administrators (CSA) recently released its annual report on the enforcement activities of its members. The CSA is an umbrella group of Canada’s securities regulators.

Summary of 2016 Results[1]

Generally, enforcement and pre-enforcement activity, and monetary sanctions imposed by regulators decreased compared to 2015 but were higher than they were in 2014.

2016 2015 2014
Monetary Sanctions $62,148,866 $138,298,796 $58,239,156
 
Restitution, Compensation and Disgorgement $349,654,379 $111,651,429 $65,717,760
 
Commenced Cases (by notice of hearing, statement of allegations, or sworn Information) 56 108 105
 
Individual Respondents 72 165 189
 
Company Respondents 72 101 92
 
Most prevalent violations Illegal Distributions
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Overview of IOSCO Research Report on Financial Technologies (Fintech)

Posted in Uncategorized

Recently, the International Organization of Securities Commissions (IOSCO) released its Research Report on Financial Technologies (Fintech). IOSCO is an international body comprised of the world’s securities regulators including some Canadian securities commissions. Fintech is disintermediating and re-intermediating securities businesses. The Report studies the evolution of Fintech and its intersection with securities market regulation in the categories described below.

Alternative Financing Platforms

The Report examines peer-to-peer lending (P2P lending) and equity crowdfunding (ECF), noting that the significant growth of each is attributable to a series of supply and demand factors, including the current low-interest rate environment, which has driven investors … Continue Reading

Update on the CSA’s “Proxy Plumbing” Initiative

Posted in Industry News, Proposals

The Ontario Securities Commission (OSC) recently held a roundtable on the “Proposed Protocols for Meeting Vote Reconciliation”. The purpose of this roundtable was to discuss issues identified during the consultation phase of CSA Multilateral Staff Notice 54-304, Final Report on Review of the Proxy Voting Infrastructure and Request for Comments on Proposed Meeting Vote Reconciliation Protocols (Staff Notice) as well as to discuss the OSC’s proposed next steps in implementing the protocols outlined in Annex A of the Staff Notice, which protocols are intended to address some of the widely accepted issues with the proxy voting infrastructure.

 Background on the Continue Reading

One Try Only: Insider Trading Appeal Reminder of Court’s Deference to Commission

Posted in Securities Litigation

The Divisional Court’s recent decision in Fiorillo,[1] upholding the findings of the Ontario Securities Commission (the “Commission”) that three traders violated the insider trading provisions of the Ontario Securities Act[2], sustained rulings by the Commission on important evidentiary and procedural issues,  and serves as a reminder that the Divisional Court generally defers to the Commission in securities enforcement cases.… Continue Reading

The OSC LaunchPad – Unveiled

Posted in Fintech, Industry News, OSC

As previously announced, the OSC has opened the OSC LaunchPad which consists of a dedicated team within the securities regulator to support Fintech businesses wishing to navigate securities law requirements.

The OSC LaunchPad will offer tailored support which can include time-limited exemptive relief to allow testing of innovative products and services.

In order to be eligible to receive support from the OSC LaunchPad, a business must meet certain criteria, including:

  • Being a new or early-stage Fintech business that has not yet started operations or is applying to the OSC for exemptive relief.
  • Having a new, innovative or significantly different
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IIROC issues cybersecurity report cards to dealer firms

Posted in Broker-Dealers, CSA, IIROC

IIROC is providing all dealer member firms it regulates (Firms) with a confidential cybersecurity “report card” that will include:

  • an individual assessment of the Firm’s cybersecurity preparedness program
  • a comparison of the Firm’s cybersecurity practices against the industry and other Firms of similar size and business model
  • a list of cybersecurity areas to which the Firm should be giving priority attention.

The report cards were generated based on the results of an extensive assessment survey that Firms completed in June 2016. The survey responses were benchmarked against a National Institute of Standards and Technology cybersecurity framework that … Continue Reading

CSA Sets Out Priorities for 2016-2019

Posted in Advisors, Broker-Dealers, Compliance and Supervision, Continuous and Timely Disclosure, CSA, Enforcement, Exempt Market Dealers, Investment Funds, Mutual Funds, Registrants

The Canadian Securities Administrators (CSA) published on July 7, 2016 their priorities for the three-year period 2016 to 2019 under four categories: “Enhanced Investor Protection”, “Fair and Efficient Markets and Reduction of Risks to Market Integrity”, “Enhancement of Enforcement Effectiveness” and “Enhancement of Information Technology”.

The CSA states its strategic objectives without once mentioning the possible impact on it of the proposed national Cooperative Capital Markets Regulatory Authority (CCMRA) some of its members support. On July 22, it was announced that the CCMRA is expected to be operational in 2018.

Enhanced Investor Protection

The CSA proposes to … Continue Reading

2016 CSA Continuous Disclosure Review: Mistakes to Avoid and Drafting Tips

Posted in Continuous and Timely Disclosure, Uncategorized

On July 18, 2016, the Canadian Securities Administrators (CSA) published a summary of the results of their annual continuous disclosure (CD) review of reporting issuers for fiscal year 2016. See CSA Staff Notice 51-346 – Continuous Disclosure Review Program Activities for the fiscal year ended March 31, 2016 (Staff Notice).

Summary

The CSA annually conducts both “full reviews” and “issue-oriented reviews” to identify material deficiencies in reporting issuers’ CD records. This year, a total of 902 CD reviews were conducted (down from 1,058 in fiscal 2015), with full reviews comprising 31% of the total reviews and issue-oriented reviews comprising 69%.… Continue Reading

OSC Clarifies Regulation of Out of Canada Distributions

Posted in Industry News, OSC, Proposals, Requests for Comment

The Ontario Securities Commission (the “OSC”) is seeking comment on Proposed OSC Rule 72-503 – Distributions Outside of Canada and its related companion policy (the “Proposed Rule”), to eliminate longstanding uncertainty about how outside of Canada distributions of securities will be regulated.

Purpose of the Proposed Rule

A distribution of securities by an issuer to foreign investors may or may not fall under the jurisdictional scope of the Securities Act (Ontario) (the “Act”) depending on the connecting factors to Ontario (e.g. the issuer having an active trading market in Ontario or a head office in Ontario).

In an interpretation note … Continue Reading

The AMF Launches Whistleblower Program

Posted in AMF, Industry News

On June 20, 2016, the Autorité des marchés financiers (the “AMF”), Quebec’s financial services regulatory authority, launched its Whistleblower Program. Individuals who have information about offences that have been committed contrary to the laws and regulations administered by the AMF, including the Securities Act, the Derivatives Act and others, may report such wrongdoing under the Whistleblower Program.

The major features of the program are:

  • Confidentiality – The AMF makes every effort to keep the whistleblower’s identity and the information they provide confidential;
  • No reprisal – An employer is prohibited from firing, demoting or otherwise adversely affecting
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Les propositions des ACVM concernant les personnes inscrites ont des effets très importants sur les courtiers et les conseillers au Canada

Posted in Advisors, Amendments, Broker-Dealers, Compliance and Supervision, CSA, IIROC, Industry News, MFDA, Registrants, Requests for Comment

Les Autorités canadiennes en valeurs mobilières (les ACVM) ont publié un important document de consultation dans lequel il est proposé de rehausser considérablement les obligations de tous les conseillers, courtiers et représentants, y compris les membres de l’OCRCVM et de l’ACFM (les personnes inscrites). Les commentaires sur ce document de consultation peuvent être présentés jusqu’au 26 août.… Continue Reading

Tomorrow, May 18, Registrants Will Receive the OSC’s 2016 Risk Assessment Questionnaire – What Will Your Firm’s Risk Rating Be?

Posted in Exempt Market Dealers, Industry News, Investment Funds, Mutual Funds, OSC, Portfolio Managers, Registrants

For the first time since 2014, the Ontario Securities Commission (OSC) will send Ontario registrants a risk assessment questionnaire (RAQ) that must be completed by portfolio managers, investment fund managers, exempt market dealers, restricted portfolio managers and restricted dealers registered in Ontario. Registrants will receive the 2016 RAQ tomorrow, May 18.

The OSC uses data gathered through the RAQ to apply a risk ranking to firms. Firms with higher risk rankings are more likely to be targeted by the OSC for compliance reviews. As a result, it is important that the RAQ answers be considered … Continue Reading

À compter d’aujourd’hui, le système d’alerte au Canada exige des informations plus détaillées en ce qui concerne l’objectif d’une acquisition

Posted in Amendments, Continuous and Timely Disclosure, Shareholder Activism

Des modifications importantes au régime de déclaration du système d’alerte canadien entrent aujourd’hui en vigueur (se reporter à notre article publié le 3 mars 2016 qui s’intitule Les règles du système d’alerte du Canada se resserrent en mai). Nous mettons ici l’accent sur les exigences nouvelles et plus rigoureuses liées à la description de l’objectif de l’acquisition.… Continue Reading

CSA Registrant Proposals Have Far-Reaching Effects on Dealers and Advisers in Canada

Posted in Advisors, Amendments, Broker-Dealers, Compliance and Supervision, CSA, IIROC, Industry News, MFDA, Registrants, Requests for Comment

Recently, the Canadian Securities Administrators (CSA) released an important Consultation Paper that proposes to significantly increase the obligations of all advisers, dealers and representatives, including IIROC and MFDA members (Registrants). Comments on the Consultation Paper can be made until August 26.

The CSA is proposing two distinct categories of changes that, if adopted, will significantly impact the economics of existing Registrant business models and Registrant compliance costs:

1. Best Interest Standard: A “client best interest” standard against which all Registrant-client obligations would be interpreted.

2. “Targeted Reforms”: A comprehensive set of so-called “targeted reforms” will affect … Continue Reading

As of Today, Early Warning Disclosure in Canada Has to Contain More Detailed Information About the Purpose of Acquisitions

Posted in Amendments, Continuous and Timely Disclosure, Shareholder Activism

Effective today, significant amendments to the Canadian early warning reporting (EWR) regime (EWR Amendments) come into force (see our March 3, 2016 publication, Canada’s Early Warning Rules Get Tougher in May). Here we focus on the new, more stringent requirements to describe the purpose of acquisitions.

The new EWR Amendments require the filer to describe any plans or future intentions it might have with respect to 11 specific potential corporate actions:

  • the acquisition of additional securities of the reporting issuer, or the disposition of securities of the reporting issuer;
  • a corporate transaction, such as a merger, reorganization or liquidation,
Continue Reading

OSC Sets Out Priorities for 2016-2017

Posted in Advisors, Broker-Dealers, Compliance and Supervision, Enforcement, Exempt Market Dealers, Mutual Funds, OSC, Registrants

The Ontario Securities Commission (OSC) released its draft Statement of Priorities for 2016-2017. The comment period ends May 9th.

Investor Protection Priorities

Advance Best Interest Standard – The OSC will recommend and conduct consultations on regulatory provisions to create a “best interest” standard for advisors. This standard is controversial for some industry participants but the OSC is committed to it. The OSC will also  continue to focus on advisor compensation practices and identify those that are inconsistent with a “best interest” standard.

Compensation Arrangements in Mutual Funds – The OSC will regulate embedded commissions and … Continue Reading

IIROC Announces Dealer Sweep on Compensation-Related Conflicts

Posted in Broker-Dealers, Compliance and Supervision, CSA, IIROC, Industry News, Marketplaces, Registrants, Uncategorized

On April 6, IIROC published Notice 16-0068 – Managing Conflicts in the Best Interest of the Client (the 2016 IIROC Notice). IIROC intends to strengthen compliance by Dealer Members (DMs) with IIROC’s conflicts of interest rules, with a particular focus on the management of compensation-related conflicts.

Specifically, IIROC announced that it will take the following actions:

  1. Immediately enhance its compliance test procedures to more closely examine compensation grids, supervisory oversight of advisors recommending products with high commissions, and the monitoring of advisors approaching compensation thresholds;
  2. By June 2016, conduct a comprehensive survey to gather more detailed information
Continue Reading

Why Securities Regulators Can’t Collect Monetary Sanctions, and What They Plan To Do About It

Posted in AMF, CSA, Enforcement, IIROC, Litigation, OSC, Uncategorized

Securities regulators across Canada impose significant monetary sanctions against market participants each year. The CSA recently reported that provincial securities regulators collectively imposed $138.3 million in fines and administrative penalties and $111.7 million in restitution, compensation and disgorgement orders in 2015.[1] This was an increase of 102% from the previous year and the highest amount of monetary sanctions imposed since 2009.

At the same time that regulators are imposing increasing monetary sanctions, they are facing an increasing inability to actually collect these sanctions. For example, the British Columbia Securities Commission has collected less than 5% of monetary sanctions imposed … Continue Reading

CSA 2015 Enforcement Report Reveals Increased Regulatory Activity and Significantly Higher Monetary Sanctions

Posted in CSA, Enforcement, IIROC, MFDA, OSC

On February 23, 2016, the Canadian Securities Administrators (CSA) released its annual report on the enforcement activities of its members. Enforcement and pre-enforcement activity has increased significantly in 2015. Monetary sanctions imposed by regulators more than doubled year-over-year and regulators concluded 38% more cases in 2015 even as the number of new proceedings increased slightly.

The 2015 Results

Monetary sanctions doubled: The regulators collectively imposed the highest amount of monetary sanctions on market participants since 2009, the year their investigation into the crash of the asset-backed commercial paper market was settled. In 2015, regulators imposed $138.3 … Continue Reading

Alberta Court of Appeal Upholds the Sharing of Compelled Information with Foreign Authorities

Posted in Enforcement, Litigation, SEC

In Beaudette v. Alberta (Securities Commission), 2016 ABCA 9, the Alberta Court of Appeal confirmed that the Alberta Securities Commission (the “ASC”) may share information compelled from Alberta residents with authorities abroad such as the Securities and Exchange Commission (the “SEC”) and the US Department of Justice (the “DOJ”).

Background

The governing statutes of the ASC and other securities commissions in Canada grant powers to compel testimony and documents through summonses.[1] These compulsion powers are meant to serve the regulatory function of securities commissions, they are not meant to assist criminal investigations.… Continue Reading

The CSA Proposes Mandatory Standardized Risk Classification Methodology for Mutual Funds and ETFs

Posted in Amendments, Continuous and Timely Disclosure, CSA, Investment Funds, Mutual Funds, Portfolio Managers

The Canadian Securities Administrators (CSA) are proposing to introduce a mandatory standardized risk classification methodology for mutual funds and ETFs (the Proposed Methodology).[1] Fund managers would be required to use the Proposed Methodology to determine the investment risk level of conventional mutual funds (which must be disclosed in the Fund Facts document) and exchange-traded mutual funds (ETFs) (to be disclosed in the proposed ETF Facts document). Currently, fund managers may determine the risk level of a mutual fund using a methodology of their choosing, though the methodology developed by the Investment Funds Institute of … Continue Reading

The 2016 Proxy Season: Glass Lewis Canadian Proxy Voting Guidelines Update

Posted in Industry News

Earlier this week, we commented on updated proxy voting guidelines released by Institutional Shareholder Services Inc. (“ISS”). Glass, Lewis & Co., LLC (“Glass Lewis”) has now also released its guidelines for the 2016 proxy season. The guidelines include changes and clarifications in areas such as proxy access, director overboarding, environmental and social risk oversight and exclusive forum provisions. A copy of the voting guidelines is available here, and a summary of certain key changes follows.

Proxy Access

Glass Lewis has stated that it generally supports affording shareholders the right to nominate director candidates for inclusion … Continue Reading